Monthly Market Update

September 2021

The Arrive Monthly Market Update, created by Arrive Insights, is a report that analyzes data from multiple sources, including but not limited to FreightWaves SONAR, DAT, FTR Transportation Intelligence, Morgan Stanley Research, Bank of America Internal Data, Journal of Commerce, Stephens Research, National Retail Federation and FRED Economic Data from the past month as well as year-over-year.  

We know that market data is vital to making real-time business decisions, and at Arrive Logistics, we are committed to giving you the data you need to better manage your freight.

Table of Contents

Executive Summary

Conditions remain extremely challenging for shippers. Truckload demand has shown no signs of slowing down, throughput issues plague the entire supply chain, and our outlook for capacity conditions has deteriorated further. These trends indicate further spot rate growth is likely through the remainder of the year with tightness likely persisting through the first half of 2022. 

•  Nationwide freight volumes remained elevated in August, limited only by the amount of available capacity. As much freight is moving as there are trucks to move it.

•  Tender rejection and load to truck ratio data indicate conditions tightened further as August progressed.

•  National average dry van and reefer spot rates increased to new all-time highs of $2.75 and $3.14 per mile, respectively, in August.

•  National average dry van and reefer contract rates increased to new all-time highs of  $2.81 and $2.94 per mile, respectively, in August. This was the fourteenth increase in the last 15 months for both equipment types.

•  Early indications point to continued spot and contract rate increases in September as the market is disrupted further by the impacts of Hurricane Ida in the South and Northeast.

•  Truckload supply recovery obstacles remain vast. Issues range from parts and labor shortages at truck and trailer OEMs to driver shortages and are unlikely to be resolved in the near term.

•  Demand is expected to remain strong, fueled by record imports and low inventories as we head into peak retail season.

•  Shippers face more challenges than ever before as throughput issues create new roadblocks throughout the global supply chain.

•  Shippers looking to gain some control over volatile costs and improve service levels should look to implement shorter-term pricing that they can hold carriers accountable to.

Truckload Demand

Truckload demand continued to be a driving force behind the tight market conditions we saw persist throughout August. Data indicates volumes were up month-over-month and year-over-year in both the spot and contract markets. We have seen a slight pullback in early September, causing year-over-year volumes to turn negative, but that is believed to be caused by the slowdowns in the South and the Northeast regions impacted by Hurricane Ida. The biggest factors behind the strong demand trends continue to be record imports and inventory replenishment driven by elevated consumer spending.

FreightWaves SONAR Outbound Tender Volume Index (OTVI), which measures contract freight volumes across all modes, was flat year-over-year at the end of August. It is important to note that OTVI includes both accepted and rejected load tenders, so we must discount the index by the corresponding Outbound Tender Rejection Index (OTRI) to uncover the true measure of accepted tender volumes. If we apply this method to the year-over-year OTVI values, the flat growth in volume increases by 4%. Tender rejections are now lower than they were a year ago, explaining why the OTRI adjusted measure is indicating growth of actual freight volumes.

When drilling down to specific equipment types, the dry van and reefer tender volume indices were down 2% and 3%, respectively, year-over-year. This equated to a 2% increase and a 4% decrease in actual volumes for the two modes, respectively. Tender rejections for dry van equipment are lower year-over-year, resulting in the adjustment from negative to positive for the dry van tender volume growth measure.

DAT reported dry van spot load posts fell 17.1% month-over-month in July but remained up by 45.8% year-over-year. This is a major pullback from JuDAT reported dry van spot load posts increased 11.9% month-over-month and 48.6% year-over-year in August. This is consistent with July, when year-over-year spot load posts were up 45.8%.

FTR and Truckstop’s Total All Mode Spot Volume Index finished August up 8% from the low seen mid-month and 2% from the last week in July. The all mode index remains up 41% year-over-year, down from 112% year-over-year at the end of June and 66% at the end of July. Despite mostly flat month-over-month trends, the declines in year-over-year growth rates are a result of rapidly rising rates a year ago.

 

 

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Truckload Supply

There were no improvements in truckload capacity data in August. All indices pointed to conditions tightening further, resulting in additional upward pressure on truckload rates. Carriers continue to point to truck and trailer shortage challenges and driver availability issues all contributing to their inability to keep up with demand.

Sonar Outbound Tender Reject Index (OTRI) measures the rate at which carriers are rejecting the freight they are contractually required to take. The index is currently at 21.94%, up from 20.49% in late July, but down from the recent peak of 23.28% seen in the week leading up to Labor Day. Despite the increases throughout August, tender rejection rates have now fallen below where they were a year ago. This is in part due to elevated contract rates providing some relief to routing guide compliance issues. The other factor driving down tender rejection rates is the increase in the tender volumes on shorter lengths of haul, where shippers are more likely to encounter higher acceptance rates. The SONAR COTRI.USA index, or rejection rate on lanes less than 100 miles, and SOTRI.USA index, the rejection rate on lanes between 100 and 250 miles, are 9.35% and 16.79%. Both are much lower than the average on longer lengths of haul.

OTRI has been on the rise since early August, but is now down on a year-over-year basis. Dry van and reefer tender rejections both followed a similar trend to the all-mode OTRI and currently sit at 23.14% and 34.94%, respectively.

The DAT Load to Truck Ratio measures the total number of loads compared to the total number of trucks posted on their load board. In July, the Dry Van Load to Truck Ratio increased to 6.46, up 11.2% month-over-month and 21.7% year-over-year. The Reefer Load to Truck Ratio increased to 14.91, up 18.7% month-over-month and 60% year-over-year.

The weekly load to truck ratios show conditions continued to tighten throughout the month, before taking a step back the week of Labor Day across all three equipment types. Spikes seen in the last week of August were a result of tightening disruptions seen from Hurricane Ida, as well as the increase in demand commonly seen in the week leading up to Labor Day. If load to truck ratios remain elevated, expect to see further upward pressure on spot rates.

The Morgan Stanley Dry Van Freight Index is another measure of relative supply. The higher the index, the tighter the market conditions. According to the index, conditions remained mostly flat, but saw some tightening as of late. Looking forward, normal seasonality indicates tightening conditions throughout the remainder of the third quarter. Their straight-line forecast indicates we will see conditions finish the year well above any other year on the chart, with conditions near the level of tightness seen shortly following the winter storms earlier in the year.

Truckload Rates

Continued demand strength and no improvement in capacity conditions resulted in further rate increases on Dry Van and Reefer equipment in August. Dry van spot rates reached a new all-time high of $2.75 per mile, including fuel. Early September results show dry van spot rates continue to rapidly increase, and currently sit at $2.87 per mile. Reefer spot rates climbed $0.01 to $3.14 per mile in August, and have also increased rapidly, to $3.28 per mile, in early September. DAT noted that spot rates have spiked as of late due to the Hurricane Ida disruptions. With no letup in sight for demand, the outlook for dry van and reefer spot rates indicates it is likely that we have not yet seen the peak. Flatbed rates, however, continue to moderate and currently sit at $3.06 per mile in early September, flat from August, but down $0.05 per mile from $3.11 in July.

The Contract-Spot Van Rate Spread has increased to $0.05 per mile in August as new records were set on both spot and contract rates.

Dry van contract rates, which have not declined month-over-month since May 2020, reached a new all-time high in July of $2.51 per mile, excluding fuel. The same trend held true for both Reefer and Flatbed equipment, with both seeing respective, new all-time highs, of $2.56 and $2.87 per mile, excluding fuel, in August.

Capacity Outlook

The outlook for capacity remains the same. Carriers are in no better position than they were a month ago when it comes to truck, trailer, or driver availability. All three factors continued to be the main themes on the August survey of Arrive’s core carriers, and in the metrics we track.

FTR’s Driver Labor Index increased just 0.1% in July based on just 3,400 payroll jobs added on a seasonally adjusted basis in the month. This increase leaves total payroll employment still at 33,000 jobs, or 2.2%, below February 2020. It is hard to get a true grasp on the driver situation due to the ongoing surge in new for-hire carriers, which could be pulling many drivers away from the payroll job totals. The majority of these new carriers are small operations. FTR has indicated that about 70% have just one driver and that these drivers would not count in total payroll employment. They estimate roughly 175,000 drivers associated with new carriers authorized since June 2020. This would equate to more than 11% of the total payroll employment in truck transportation. This driver pool fragmentation would presumably make the capacity associated with these carriers less accessible to shippers. This is particularly true in contract business, where larger asset carriers and brokers make up the majority of the wallet share. In addition to this trend, drivers are also flocking to parcel and local delivery jobs, which has seen a 14% increase of more than 123,000 jobs since February 2020.

The equipment side of the equation also remains significantly challenged. In a recent webinar hosted by FTR, Don Ake, VP of Commercial Vehicles, provided his insights on the situation. He stated we have seen parts shortages, particularly semiconductors, result in significant production delays and backlogs for both new trucks and trailers. Even if semiconductor shortages were not a problem, other parts shortages would still result in an inability for OEMs to operate at full capacity. It is estimated that there is a deficit of 11,500 units per month for new trucks and a deficit of about 8,800 units per month for new trailers. New truck lead time, the time in months from when a new truck is ordered until it is delivered, jumped to 17.8 months. This is a result of production falling even further behind, an indication that the part shortages aren’t getting better as of late. It is still too early to predict when this situation will improve, but experts agree that once the supply chain issues for parts needed in truck and trailer production are resolved, it will still require many months to work through the current backlog.

New truck lead time increased from 11.3 months in June to 17.8 months in July.

Given the severity of the outlook for new equipment, FTR’s forecast for truck utilization, the share of seated trucks actively engaged in freight hauling, shows active truck utilization remaining above 98% or higher through the remainder of 2021 and above 96% through 2022. For a point of reference, the average active truck utilization over the past ten years is 91%.

Volume Outlook

The outlook for demand is relatively unchanged on a month-over-month basis. Strong import volumes are supplying the domestic freight market with as much tonnage as it can handle in the form of finished goods to backfill low inventories and raw materials to support manufacturing and industrial production. Government stimulus and virus-related shutdowns led to supply shortages and pent-up demand. That pent-up demand is still playing itself out in 2021, as retail imports are on pace for gains of more than 17% year-over-year from 2020, which was a new record high at the time. We have seen new trends emerging as a result of the backlogs at the ports and rail yards across the country. Containers that would normally be destined for the West Coast are being diverted to the East Coast to bypass the congestion in Southern California. Chassis and container shortages are forcing shippers to rely on transloading services near the ports to get their freight to its final destination inland. As of late, we have also seen severe weather contribute to demand volatility as Hurricane Ida made landfall and worked its way across the country. The situation is extremely complex, and there is no clear path to relief. 

FTR’s latest truck loadings forecast shows a slightly weaker outlook for 2021 than last month’s forecast. In the dry van sector, the forecast shows a total truck loadings increase of 6.9% for the full year, down from 7.4% a month ago. Refrigerated loadings are expected to see 3.6% increases, while flatbed loadings are expected to climb 4.5% in 2021. While reefer loadings forecasts are down from 4.1% previously, flatbed loadings forecasts are up from 4.1% last month.

There are signs that the growth we have seen as a result of stimulus is slowing, but overall, the outlook for the economy remains relatively strong. Job and wage gains should support continued consumer spending and industrial production, and manufacturing should continue to drive healthy freight volumes. There is no reason to believe we should see meaningful reductions in truckload demand in the short term.

Economic Indicators and Consumer Sentiment

The Bank of America (BofA) consumer spending data provides visibility into changing consumer behaviors and spending patterns. Total card spending is up 15.5% year-over-year and 24.3% compared to 2019, for the 7-day period ending September 4th. These results are slightly skewed by the date Labor Day took place, but if you were to look at the 3-week moving average to smooth out the noise, total card spending is running at 16.2% over a 2-year period and 12.8% year-over-year. These numbers indicate consumer spending is still significantly elevated as we enter September 2021.

One of the main factors BofA is watching as it relates to spending is the impact of the Delta variant rise. The biggest impact has been seen on travel, with airline spending down 19.5% month-over-month, seasonally adjusted, in August. This was the largest drop since January 2021 and leaves total airline spending, on a 2-year basis, at the lowest level since April. 

The unemployment trends continued to gradually improve in August. Initial claims in the most recent week came in at 310,000, down from 385,000 from last month and the lowest total since the start of the pandemic. Continued claims are also at their lowest levels since the start of the pandemic, down to 2.78 million from 2.93 million last month, on a weekly basis. 

Conclusion

The increasing trends in truckload rates are indicative of the shift in the balance between supply and demand in August. Unfortunately for shippers, further deterioration in our capacity outlook adds strength to the forecast indicating market tightness through at least the end of the year, and likely extending through the first half of 2022. Forecast risk continues to be stronger to the upside, meaning rates are less likely to turn down abruptly than they are to increase further. 

In addition to rate hikes and challenges with tender acceptance, shippers are now being forced to make strategic adjustments on the fly to keep their supply chains moving. This is particularly true for shippers who import finished goods or raw materials needed for production from overseas. The backlogs at the port are twofold. First, shippers must wait for their goods to be unloaded from the ships, and then again, they must wait or get creative if they want to quickly access their freight once it comes ashore. The container backlog at the port, due to chassis shortages, has forced shippers who need immediate access to their freight to pay additional transloading fees to get it out of the containers and onto the equipment that will take it inland to its destination. 

The reality is that capacity is constrained in every way. This is true for both equipment and labor, not just in over-the-road transportation, but at the ports, rail yards, production lines, and all other aspects of the supply chain. Increasing concerns about the Delta variant and recent bouts of severe weather have added even more uncertainty and disruption to the mix. As we approach the fourth quarter peak season, shippers should have clear expectations of their transportation providers and hold them accountable. Shorter-term pricing is a great way to improve routing guide compliance, minimize day-to-day volatility and improve overall service levels.